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The State Should Not be Financially Liable for COVID-19 Regulations

Recently, the Administrative Chamber of the Supreme Court ruled on the first lawsuit regarding the financial liability of the State, in which damages suffered by a company (belonging to the hospitality sector) as a result of the application of regulations approved to prevent or mitigate the spread of the COVID-19 pandemic were claimed.

The ruling first details the global health crisis (starting with the first cases of pneumonia of unknown etiology in China) and, regarding our country, it highlights that, despite warnings to the contrary, various concurrent gatherings of people (demonstrations) took place until the Royal Decree-Law 7/2020 was approved on March 12, 2020, adopting urgent measures to respond to the economic impact of COVID-19.

Then, the regulations deployed and the specific measures adopted by public authorities for the business sector dedicated to hospitality and catering in order to curb the pandemic’s spread are outlined.

Next, the Chamber argues that the rules that imposed a set of restrictions were included in royal decrees of the State of Alarm, which implies that they have the value of law and, therefore, the Supreme Court must adhere to these rules, and none of the royal decrees of declaration or extension of the state of alarm contain the provision of the right to compensation.

Therefore, the judge focuses on rejecting the financial liability based on a double consideration: Firstly, because the requirements to appreciate the responsibility of the Spanish State are not met. The norm that caused the damages was not declared unconstitutional, and the claimant company did have the legal duty to bear those damages as affected by the law.

Secondly, as the Constitutional Court previously anticipated, the Supreme Court also considers that the damages suffered are not unlawful, since they stem from necessary, adequate, and proportionate measures to the seriousness of the situation, emphasizing that society as a whole (not just the business fabric) had to bear the decisions adopted by public authorities to preserve the health and life of citizens.

Conclusion of the Court: Force Majeure and Principle of Precaution I believe that the resolution, although it contravenes the business interests that I have the pleasure of defending, is well-founded, mainly based on the concurrence of force majeure (constituting an unusual and unexpected event at the time it arose and in the way it spread across the planet) and the principle of precaution (recognized by European Union Law), which determines that “when human health is at risk, it is up to the claimant seeking compensation to prove that the measures to which the damage is attributed are not justified, suitable, and reasoned. And this is very difficult for entrepreneurs to prove, as a retrospective bias cannot be applied that allows analyzing the efficacy “post facto”, or not, of the imposed measures.

Furthermore, as long as the Constitutional Court qualified the Administration’s action as “reasonable, proportional, and adequate to the existing situation”, it already suggested that the Supreme Court would consider that the State’s action did not violate the principles of legitimate trust, effectiveness, legal certainty, proportionality, motivation, and good regulation.

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Senior Lawyer specialized in labor, corporate, and procedural law, with experience representing tourism companies and industry associations. Provides guidance on business and real estate transactions and resolves civil and commercial disputes through mediation.
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